iPhone 8 will weaken demand for iPhone 7: Morgan Stanley

The iPhone 7 recorded robust sales during the holiday quarter. However, demand for Apple’s flagship smartphone is expected to decline in the coming months. In a research note to investors, Morgan Stanley analyst Katy Huberty said anticipation for the iPhone 8 would mute the iPhone 7 sales during the next couple of quarters.

Image Credit: Apple Inc. (Screenshot)

iPhone 7 sales to decline

At least one model of the iPhone 8 is rumored to feature a new design and exotic technologies. The iPhone’s exterior design hasn’t changed in the last three years. As a result, a large number of iPhone 6 owners chose to pass on the iPhone 7 cycle. Apple’s sales have been declining for more than three quarters. Though the iPhone 7 is expected to stem the decline in sales, it doesn’t have cool enough features to drive massive growth.

Katy Huberty slashed her fiscal 2017 iPhone unit sales estimates by 7% and revenue estimates by 3% to reflect weak demand “ahead of the supercycle.” Apple is set to report its December quarter results on January 31. The company is also expected to offer financial guidance for the March quarter. Huberty expects Apple’s March quarter guidance to be below consensus.

iPhone sales to jump 20% in FY2018

Morgan Stanley has trimmed its December quarter iPhone sales estimate from 79 million to 75 million units, and March quarter estimate from 55 million to 51 million units. A “supercycle” is the massive rise in demand after a year of lukewarm sales. Since the iPhone 6S and iPhone 7 brought only minor improvements, they had lackluster sales growth. Most users upgrade every 2-3 years, and there is a large number of iPhone users waiting for major improvements before they upgrade.

Katy Huberty remains bullish on Apple. She predicts the iPhone sales would grow 20% in the fiscal year 2018 to a record 253 million units, largely driven by the iPhone 8 sales. Apple is rumored to launch three iPhones this year. Two of them would be minor upgrades over the iPhone 7 and 7 Plus. The third model, iPhone 8, will have an entirely new design with full face OLED screen, no physical home button, and wireless charging. Supply chain leaks suggest the iPhone 8 would have a glass-sandwich design and IP68 waterproof rating.

Apple cuts iPhone 7 production

Last month, Japanese publication Nikkei Asian Review learned from supply chain sources that Apple was planning to cut the iPhone 7 and 7 Plus production by 10% in the January-March quarter due to sluggish demand. The tech giant had curbed the iPhone 7 production volume by 20% to avoid accumulation of inventory. But the new iPhone sales have been even lower than expected, prompting the company to cut production. The 5.5-inch iPhone 7 Plus with dual-camera setup remains popular, but Apple suppliers aren’t able to produce enough camera sensors.